Lara de la Iglesia (moderator): Hi, I'm Lara de la Iglesia. Cellphones, tablets, laptops – technology is an indispensable part of our lives. I certainly know it is for me. But the innovation technology brings can alter entire sectors of the economy and have profound impacts on the labour market.

To discuss this, I'm joined today by three of Vanguard's top economists: Roger Aliaga-Díaz, Joe Davis and Jonathan Lemco. Thank you guys for being here.

Roger, I'm going to start with you. There have been some very prominent studies that talk about the impact of technological innovation on the economy. A big take-away is that millions of jobs are going to be automated away over the next several decades. Tell me about that. What's behind those findings?

Roger Aliaga-Díaz (Vanguard chief economist, Americas): Yes, those are very significant studies both on the academic side and also from private consulting firms. The task behind the studies is quite monumental. They basically – it's not the nexus of science fiction. They actually look at proven technologies that exist today. For example, autonomous vehicles, artificial intelligence and things like that, and then, on the other hand, they also look to all of the occupations in the US labour market.

And not only that, they go into each occupation and they see how we work or spend the time working those occupations; what are the activities and tasks they do within that. So, essentially, what these studies do at a very high level is to match technologies against those tasks or activities that are susceptible or can be automated away.

The numbers are staggering. For example, for the US labour force, 150 million people unfortunately – they spend half of the time doing things such as data collection, data processing, predictable physical work. All those types of tasks or activities can easily be automated away in the not-distant future. So, we're talking about half of the labour force potentially being replaced by technology.

Lara de la Iglesia: You said half of the United States. What does that look like in other countries, maybe emerging markets?

Roger Aliaga-Díaz: Emerging markets – for example, take China, or India is even worse, because what happens in those countries is that they actually do more of the manual work, more of those predictable types of activities. And then, those percentages are as high as 70%, for example. Imagine for the labour force in China – those are significant numbers.

Lara de la Iglesia: Joe, I have to ask you: Millions of jobs? Seventy percent? That's pretty staggering. What are your thoughts on that?

Joe Davis (Vanguard global chief economist): There's good news and bad news here. The good news is that there's been lagging productivity, meaning output per person in the global economy. One of the primary reasons why interest rates may be as low as they have [been], and fixed income returns are low going forward. So, this is good news for standards of living because the only way the next generation may have higher standards of living than the past is because you have advances in productivity.

So, if we have automation and machine learning, these have been or are starting to be and will continue to be very disruptive forces that I would argue, all else equal, that productivity rates will increase and that means higher standards of living. Now, the sobering concern is that we have – it's not so much that this is in any way different, because we've always had technology eliminating jobs.

If you look at the evolution of any economy, take the United States. What we can do in farming today versus 100 years ago, what we saw on the factory floor; we've had robots for over 30 years in parts of the automobile industry. We will increasingly see this in the office in fields such as education, health care, and finance.

At the same time, there could very well likely be a shortage of workers in certain sectors that require a great deal of education, training. So we don't see all jobs going away.

I think some of those studies are a little too pessimistic because it's task, not jobs. And so, there's a number of tasks in any of our jobs. Just think of what you do in the day, in your work life. There's dozens of tasks. Those studies assume that every job has just one task. So, some of those tasks will be automated away, but there are certain professions that will be under increased pressure over the next decade.

Lara de la Iglesia: Jonathan, there's a term that describes what we're talking about here – "creative destruction". Can you tell me a little bit more about that?

Jonathan Lemco (Vanguard senior investment analyst): Yeah, "creative destruction" was a term that was first brought forward by Joseph Schumpeter, who was – this was 1942. He was an economist and a philosopher. And what he was saying was, he was looking at a well-run capitalist economy, and he was saying the existing industrial organisation is bound to change in such a system. There will be revolutions, if you will.

When we have a new innovation, as we seek profit, there will be jobs gained, but there'll be jobs lost as well. And we have, as a society, to adapt as a consequence of that. Winners and losers. And so, for some real-world examples, think Henry Ford, who revolutionised the automobile industry with his assembly line. But there was a cost to that and there was a cost in terms of jobs, there was a cost in terms of workers who were not trained for this. There was a cost in terms of, in fact, broader manufacturing industry which had to adapt to this new assembly line.

On balance, this was a very positive thing. On balance, this was profitable, this created new jobs. But there were always winners and losers in this kind of thing. More recently, the dot-com revolution of the 1990s, absolutely revolutionised how we view our use of technology as well. But let's remember, not so long ago, there were some of those who were less well-trained, there were those who were unable to adapt, and they were economic losers in the game just as there were many, many winners.

And by the way, this is continuing to this day. That's what Schumpeter was referring to when he was talking about creative destruction. It is on balance a positive thing. There's always winners, there's always losers, and by the way, you have to get used to it. It's central, it's organic to a modern capitalist system.

Joe Davis: And I think that's the real debate that you mentioned, with these studies saying 50% of the jobs in the United States with today's technology will be automated away.

Some are arguing that this time is different, that there will be more jobs destroyed than there are those created by new technology, where in the past we've always had this fear of new technology. Think of textile workers in the early 1800s, taking protests to the textile mills; the carriage workers who, when they see the Ford assembly plants going up for cars, but yet at the end, you say, "We have millions of jobs today, more than we've had in the past."

But that's at least the debate, that some fear that technology is becoming so powerful, that it can do an increasing number of human tasks, that humans won't have any jobs left to do. Our analysis says that is too pessimistic because just think of how many problems there are in the world. The average number of tasks per job is well into the dozens. And so, we still see more jobs being – more jobs 10 years from now than there are today. But there will be some professions, particularly across the pay distribution that will be – I think that will continue to be under pressure.

Jonathan Lemco: Very quickly, Joe hits the nail on the head here because it points to a central issue which is with all this massive change, we don't know what we don't know yet. We don't know what new jobs will be out there, but history teaches that they really emerge. The human brain is capable of amazing things when challenged. We will have remarkable innovations going forward. We just don't know them yet.

Lara de la Iglesia: Well, thank you guys very much. This has been a great conversation. I think a big take-away is change is difficult as we're in the midst of it but, hopefully, that also brings up new opportunities and the opportunity for the economy to continue to strengthen.

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